Last year, I found myself wandering through a local Half-Priced Books, an independent bookseller that is one of the few bookstores to remain in business, and found a copy of a book entitled, "Value Investing with the Masters." written by Kirk Kazanjian. Anxious to get it home and sit on the couch to begin reading, I found myself thoroughly disappointed and placed it on my shelf, mostly unread. Recently, I decided to browse through my books and begin to re-read several of them, when I came across this book. I decided to give it a second chance. While still disappointed, I urged myself to complete the reading of the book and to find some lessons that I could take from each chapter where the author had interviewed many of the investing greats.
I noticed that one of my favorite guru investors, Wallace Weitz, had been interviewed and I found myself skipping to that chapter. Wallace Weitz, as most know, began his investment career early on, discovered Benjamin Graham and Warren Buffett and became a devoted disciple, but with his own twist on value investing. Weitz is portfolio manager of Weitz Value Fund, Weitz Hickory Fund and Weitz Partners Value Fund valued at roughly $2.25 billion in assets.
Weitz clearly indicates his admiration for fellow Omaha investor Warren Buffett, but clearly is his own person and has his own style. His portfolio is unmistakably distinct from Buffett’s, but Weitz clearly emulates Buffett’s requirement to read all of the financial reports and to consider how one would purchase the business, rather than the stock, and to seek out the inexpensive investments with a good margin of safety.
He clearly displays humor in the interview, an attribute that probably serves him well in what is a very intense discipline such as investing. It certainly is a trait of Buffett and Munger. Weitz proudly tells of the time he was able to beat Warren at bridge and earned his $9 from the great investor. He displays a little self deprecating humor by admitting that his wife reminds him that he’s unable to remember to pick up the laundry, but he can remember what he purchased a stock decades earlier.
So what did I learn or take away from this interview with Wallace Weitz? Mostly, many of the same lessons that we heard before, but don’t always heed the good advice. Here are a few reminders and specifics that I thought worthy in the interview.
When asked about his stock evaluation process, he definitely searches for a business that’s for sale or inexpensive, but he more or less cautions that he’s not just looking for a business that’s cheap based upon simple metrics or what he calls “statistically cheap.” He says that he’s “looking for a solid business that has some control over its destiny that generates what I call discretionary cash flow, meaning the money may be plowed back into the business but doesn’t have to be.” He wants growth, but not too much, and management that has motives that equal the investors'. He goes on to explain a little about companies that control their own destiny and pricing by referring to monopolies such as cable companies or broadcast companies. They reserve pricing power because they mostly have no competition.
Weitz’s portfolio bears out his liking for these types of businesses. Some of his holdings include:
Liberty Media Corp. (LMCA)
Comcast Corporation (CMCSA)
Comcast Cla Spl (CMCSK)
Perhaps one of the strongest reinforcements to the idea of remaining firm in the midst of a falling stock price is given by the great investor. When asked about purchasing a stock and the price immediately descending, Weitz says that he rechecks the story of the stock to make certain that nothing was missed. If he believes that he got the valuation correctly, he celebrates and buys more. He states, “As I said before, that’s the ideal situation. It can cause some indigestion when the price goes down. By the time it drops the 14th time and you recheck and buy it again, you start to doubt yourself.” A great reminder of all of us.
Weitz reaffirms that he is a very patient investor. “You need to have patience and a willingness to look dumb for a while," he says.
He rarely allows any stock to get over 5% or 6% of his portfolio.
He admits to keeping large cash positions until he is thoroughly ready to buy and loves to have money available when a stock drops drastically for the wrong reason and he’s able to immediately purchase more.
Though Buffett’s aversion to tech stocks has recently changed, Weitz indicates an aversion to tech in the interview, but no longer appears to stay away. His portfolio now includes:
Texas Instruments (TXN)
Hewlett Packard (HPQ)
Finally, Weitz warns against the Wall Street minutiae that clutter our minds with unnecessary details and that steer us away from the two or three items that will ultimately decide whether the company succeeds or fails.
Take time to study Wallace Weitz and his portfolio and you will discover some exciting new ideas and a great investing guru.
Disclosure: Long on MSFT